Holly Bakke, former New Jersey commissioner of the Department of Banking and Insurance, is consulting with Insurance Bureau of Canada about the auto insurance system in Ontario.
When people learn I'm from New Jersey, certain questions always seem to follow, so let me get them out of the way up front. I don't know any mobsters and I've never met Snooki. I have met Bruce Springsteen, though, so at least I have that to talk about.
An experience I much prefer to talk about is how, as the state's commissioner of the Department of Banking and Insurance, I helped fix New Jersey's auto insurance system after 30 long years of repeated, failed reform efforts that ultimately hurt consumers.
Until 2003, New Jersey had an auto insurance system that was expensive, vulnerable to abuse, excessively complex and overburdened with well-intended rules and regulations that didn't help anyone – including the consumers whose interests the system was meant to serve.
Sound familiar? It should. Where New Jersey was then, Ontario is now.
I recently presented to the expert panel that is leading the government-mandated review of the province's auto insurance regulator, the Financial Services Commission of Ontario (FSCO). I was struck by just how similar our two jurisdictions are. As one who has been down the same road, I can assure you it won't end well without a significant change in approach by both government and insurers.
By that, I don't mean more tinkering. I mean real change: an overhaul of how the auto insurance system is regulated and what Ontario's auto policy looks like. For too long, FSCO has been stuck perpetuating the same cycle that New Jersey found itself caught in – enforcing well-intended yet ineffective regulations, followed by more of the same when the previous set didn't work.
What does Ontario need? What New Jersey got: smarter regulation. And what did 75 per cent of drivers get? Reduced auto insurance premiums.
As commissioner in New Jersey, my job was to enforce the rules that auto insurers must follow, like FSCO here. We regulated every detail of the policies they sold and we told insurers what they could charge, all in the name of "consumer protection." But what we were actually doing was the opposite of protecting New Jersey drivers. We were contributing to consumers paying too much and having limited choices in policies and insurance companies.
We fixed it, but it took a tremendous, co-ordinated effort. Most importantly, it took the government and the insurance industry working together and focusing on the interests of the consumer. We gave drivers choices and allowed insurers to properly price and innovate. The bill that brought in the changes was bipartisan, led by a liberal Democratic governor and passed unanimously in the state legislature. Auto insurance became affordable and hasn't been a political issue since.
It worked because we put the consumer at the centre of everything we tried to accomplish.
And here is a revelation that may shock you: Insurers want to lower rates. Really. Like any business, they want to take customers away from competitors, and one great way to do that is to be cheaper. Currently, if an insurance company in Ontario wants to lower rates, it can take six months to gain approval. Smarter regulation puts the consumer first, ensuring that a process such as a rate change is simple and quick.
Ontarians need a system that allows insurers to be responsive to changes in market conditions and consumer needs. You need to let them do business.
For all the similarities between New Jersey then and Ontario now, there is one critical difference. You are not dealing with an exodus of insurers from the market, at least not yet. An unhealthy auto insurance system will eventually lead to both affordability and availability problems. In New Jersey, we had both; for now, Ontario just has affordability problems.
Fortunately, you have an opportunity to fix things through the FSCO review. The expert panel has released its preliminary report, and it lays out a vision for a restructured and modernized regulator. It is, at the very least, a good start.
The insurance industry and government, working with consumers as their focus, can use this opportunity to bring about profound change. This is Ontario's chance to develop a smarter regulatory system that will lower premiums for consumers, support innovation, address problems pro-actively and allow insurers to compete on price and service while offering their own value proposition to the consumer.
In other words, a system that grants consumers the ultimate power – the power to choose the insurer that provides the best choice and price to meet their needs.